Business
Gains in 1970s came the hard way 1980^ after a likely pause for recession in 1980 itself. It all depends on one's point of view. On the people front, the chemical industry hardly expanded at all in the 1970's except in special categories of women, minorities, and scientific and technical professionals. However, even for women and research and development professionals, employment growth ran at just half its rate for the previous decade. For plant personnel, who hold nearly three of every five jobs in the chemical industry, the 1970's saw virtually no employment growth. Since the workweek was also stationary, these employees had to become more efficient. This shows up in a rate of productivity gain surprisingly close to gains in the 1960's. However, wages really took off in the 1970's, resulting in steadily increasing unit labor costs compared to the declines of the previous decade. On the product front, the 1970's, as expected, trimmed the rate of output growth in nearly every major category. The decade also brought a stern downward adjustment in development of new products and processes in favor of an intense campaign refitting present products and processes for greater safety, less pollution, and energy savings.
For U.S. chemical industry, the seventies couldn't match sixties for growth in jobs and output, but profitability firmed, foreign trade soared William F. Fallwell C&EN, New York
The 1970's won't soon become a mine for nostalgia buffs, who right now are dwelling on almost any other period. A hard-nosed reversal of the 1960's, the seventies brought roller-coaster economic cycles and pruned the rewards mainly to those of discipline and, at times, a bit of luck. Fortunately, the U.S. chemicals and allied products industry got at least its share of the latter, according to C&EN surveys of vital economic indicators over the past 20 years. Although the seventies had their grinding aspects for U.S. chemicals, the decade finished better than it began in some important respects, notably in profits, plant use, and foreign trade. These improvements promise some good years in the early
Even so, some products grew surprisingly well in the seventies. The star of the decade indisputably was plastics. Despite the Organization of Petroleum Exporting Countries, U.S. government regulation, and an image problem, plastics grew nearly as fast as they did in the sixties. With moderate growth generally in its products, no growth in employment, and a strong efficiency drive in many directions, the chemical industry certainly stood a basic chance of improving its financial performance. And that's exactly what happened, although some stiff challenges made the outcome uncertain at times. The worst challenge was drastic increases in the cost of everything, including money. The chemical industry had come through the sixties with a tradition of absorbing higher costs through efficiency gains. In fact, companies steadily lowered product prices. The raging inflation of the 1970's put this tradition to an impossible test. However, the chemical industry managed to swallow the cost bulge without hurting profitability by increasing product prices about in line with general inflation. As a result, the industry ended the steady erosion in profitability from the 1960's. In the seventies, profits
Growth in the 1970's was less than in 1960's except in inflated money figures, foreign trade U.S. chemicals and allied products
! PEOPLE I Employment, thousands ! Total Production employees I Women | R&D professionals ; For production employees | Hourly wage Workweek, hours Total weekly workhours index (1967 = 100) I Productivity index I (1967 = 100) Unit labor costs index | (1967 = 100)
Annual averages
Average annual change, %
1979
1969
1959
1970-79
1112 637 270 49
1060 622 220 40
809 506 151 32
0.5% 0.2 2 2
3% 2 4 4
$7.56 41.8 108.2
$3.47 41.8 105.5
$2.40 41.4 84.9
8 0 0.2
4 0.1 2
194.5
112.2
64.0
6
6
125.4
99.7
120.9
2
-2
PRODUCTS (indexes, 1967 = 100) Chemicals & allied 210.5 118.4 products Basic chemicals 189.9 117.0
1960-69
54.3
6
8
58.0
5
7
U.S. chemicals and allied products
Alkalies, chlorine Organics Inorganics Synthetics (polymers) Plastics Rubber Fibers MONEY, $ billions Sales (worldwide) Profits Profit margin on sales Product price index (1967 = 100) Capital spending R&D spending Foreign trade Exports Imports
Average annual change, %
Annual averages 1979
1969
1959
1970-79
76.1 48.8 70.4 43.5 46.7 74.0 36.1
1 6 3 9 11 1 7
4 10 3 12 12 5 14
$56 $3.6 6.4% 100
$26 $2.1 8.1% 102
12 12
8 6
8
-0.2
$8.5 $3.9
$3.1 $1.7
$ 1.2 $0.8
11 9
10 8
$17.0 $7.3
$3.4 $1.2
$1.6 $0.5
17 20
8
129.8 231.2 133.1 319.9 416.7 131.3 271.0
$170 $11.3 6.6% 222
115.1 125.3 97.6 141.2 148.6 117.7 139.8
—
I
1960-69
—
9
I
Jan. 7, 1980 C&EN
11
Sources: Commerce Department, Labor Department, Federal Reserve Board, Federal Trade Commission, National Science Foundation, C&EN calculations and estimates
grew about in line with sales. One help was a rate of real-dollar new plant investment much lower than in the 1960's. This brought plant use into a more desirable range as the 1970's closed. A second big help was a boom in foreign trade greatly fa voring U.S. exports. The U.S. finished the decade as the most attractive area of the world for making chemicals. All in all, the seventies may have come out well in the end for the chemical industry. But this kind of progress was a far cry from the growth-oriented smooth sailing of most of the sixties. In a way, the seventies brought the industry to grips with a number of basic problems that could not be ignored under tougher economic and regulatory circumstances. Statistics from various government sources show how the chemical in dustry tightened up in response to a stormier business climate, and the heavier hand from Washington. The biggest change in the growth of its resources was in people. From an av erage 3%< gain per year in the 1960's, chemical employment slowed to a 0.5% average increase in the 1970's. winding up at 1.11 million in 1979 compared to 1.06 million in 1969. For production employees, the drop was from 2% per year to 0.2%, leaving their ranks at 637,000 in 1979 after 622,000 in 1969. Smaller groups fared better. Chemical employment for women grew 2% per year in the 1970's com pared to 4% in the 1960's. But since total employment hardly budged, women increased their part of the total to 24% in 1979 from 21% in 1969 and 19% in 1959. For scientists and engineers in R&D, jobs (in terms of full-time equivalents) grew 2% per vear in the 1970's after 4% in the* 1960's in chemicals and allied products. These employees numbered about 49,000 in 1979, C&EN estimates, compared to 40,000 in 1969 and 32,000 in 1959. Hence, their part of the total chemical workforce picked up to 4.4% in 1979 from 3.8% in 1969 and 4.0% in 1959. The gains in the 1970's came more in the second half than in the first few years and continue rather well at present. Since these professionals' salaries take up about half of R&D support at chemicals and allied products com panies, R&D budgets had to grow substantially in the 1970's. C&EN estimates companies' R&D spending in 1979 at $3.9 billion, more than double spending of $1.7 billion in 1969 and nearly five times spending of $800 million in 1959. Average an nual budget growth in the 1970's was 9% after 8% in the 1960's. With infla 12
C&EN Jan. 7, 1980
tion removed, this growth left a small margin of real-dollar gains, about 1 to 2% per year in the 1970's. As in past C&EN surveys, this real-dollar growth corresponds closely with growth in employment for R&D pro fessionals. Even this modest increase in jobs looks like a lot compared to the em ployment at chemical plants. One major disincentive was the big in crease in labor costs unmatched by productivity gains. In this respect, the seventies were the reverse of the sixties. Although productivity (physical output per workhour) gains averaged 6% per year in both decades, hourly wages shot up 8% per year in the seventies following 4% in the sixties. Hence, unit labor costs (cost per unit output) rose 2% per year in the 1970's after falling 2% per vear in the 1960's. Another reason plant employment idled in the 1970's was that produc tion and real-dollar new-plant in vestment both toned down from the 1960's. For the broad chemical in dustry, production rose 6% per year in the more recent decade compared to 8% in the sixties. In basic chemicals, growth was 5% per year in the 1970's compared to 7% in the 1960's. The only reason growth held up even this well was a 6% an nual clip in output gains for organics in the 1970's. Alkalies and chlorine sank to a 1% annual gain, and inor ganics plodded along at an annual rate of 3%. The best source of growth for chemicals in the 1970's was through downstream polymers, especially plastics. Polymers as a whole grew 9% per vear in the 1970's compared to 12%Λη the 1960's. However, plastics nearly equaled their decade-earlier growth, down just one percentage point to 11% per year in the 1970's. Fibers' growth rate fell by half in the 1970's to 7% per year. For rubber, the seventies were a rough time, with growth just 1% per year after 5% in the sixties. Chemical companies adjusted their plant investment quite well in line with the reduced rate of product growth. Official capital spending budgets rose 11% per year in the 1970's after 10% in the 1960's. How ever, inflation reduced average realdollar growth in new plant and equipment to 3% per year at the most in the 1970's. And actual net increases in new production capacity were probably less than that because of a widespread tendency to use more capital funds for refitting old plants than in new construction. As a result, plant efficiency and use rates today are much better generally than in 1969. Although the next dec
ade may well start with a recession as did the 1970's, the chemical industry may not have to wade through a soft market spell for as long as it did 10 years ago. Chemical profits are showing the effects of better plant use. For the 1970's, after-tax profits in chemicals and allied products rose an average of 12% per year, reaching $11.3 billion in 1979 after $3.6 billion in 1969 and $2.1 billion in 1959. Although annual profits growth was just 6% in the 1960's, the difference in the growth rates is due almost entirely to infla tion. Real-dollar profits growth in both decades was about 4%. Profits growth in the seventies caught up with sales growth, which also averaged 12% per year. Sales had climbed a vigorous 8% per year in the less inflationary sixties, well ahead of the profits pace. Hence, the profit margins on sales in chemicals and al lied products edged up a bit in the seventies, ending with about 6.6% in 1979 compared to 6.4% in 1969. Although the chemical industry can trace much of its profits firming in the seventies to bootstrap efforts in efficiency, the industry also got a major lucky break in foreign trade, and from a surprising source. Al though the industry at the time had great misgivings about OPEC's dra matic increase in the oil price in 1973, the new price structure for world hy drocarbons turned out to be a bo nanza for U.S. chemicals. Since im ported oil accounted for only a quar ter of the industry's feedstock and energy costs as late as 1978, the in dustry was much more shielded in such cost increases than were com peting industries in Europe and Japan. As a result, U.S. foreign trade in chemicals mushroomed in the late 1970's, reaching an estimated $17 billion in exports and $7.3 billion in imports in 1979. These figures are up a resounding 17% per year in exports and 20% in imports from 1969. In the sixties, the corresponding growth rates were 8% and 9%. By 1979 U.S. chemical exports accounted for 10% of total sales, up from 6% in 1969 and 1959. Although this trade advantage is not expected to last indefinitely, the U.S. chemical industry is still under stronger control now than in 1970. In 1970, no one suspected the degree of disciplining about to hit the industry after its heady expansion days. In 1980, some in the industry are con templating what might happen if the stringent conditions of the decade just ended eased even slightly in the years ahead. Even if strictures con tinue, the general feeling now is, "We're ready." D
